Reallocated forfeitures

[rlb64]

I'm sure this has been brought up before, but what is the normal procedure for handling a loss on a forfeiture account after plan year end and the plan doc says to reallocate forfeitures? Should I process an asset based charge (as a loss) to all participants for the following plan year?

[FundeK]

Nothing to base this one, except that it feels really wrong....

Why in the world would you process a loss to all participants?

By loss, are you talking about the fund the forfeiture account uses lost money. So, you started with $2,000 in forfeitures, ended up with $1,800? Or are you saying there was an some kind of error in processing and the forfeiture account had to fund money causing a loss?

[rlb64]

Forfeiture balance of $5,000 as of 9/30/04. Balance went down to $4,996 due to a loss in the money market fund. The participants as of 9/30 are entitled to an allocation of the full $5,000.

[mbozek]

How can you have a loss in a mm fund? I thought that mm share valuations below $1 were extremely rare and only occurred with institutional not retail funds?

[rlb64]

I assume it's the fees.

[GBurns]

I am puzzled by the question.

If this forfeiture account consists of money accumulated from the forfeiting of balances from the accounts of former plan participants, it is the entire amount that is in the account which must be reallocated not the "loss". There is no loss there is only a lower amount in the account available for reallocation.

If you reallocate this "loss" what would you then do with the remaining account balance???

[himt4]

I understand the problem. Happens often. $5,000 is sitting in a segregated forfeiture account at year end. I do a nice job of reallocating the $5,000 to eligible plan participants. I send the schedule of reallocation to the trustee for him to sign and pass on to the financial institution. However, by the time the Financial Institution gets the instructions, the account is now less than the $5,000 and therefore my schedule is useless. A lot of wasted time. From these experiences, I usually pick a conservative figure, say $4,950 and reallocate that. keep a little in the forfeitue account to give us a little wiggle room.

[rlb64]

The liquidated amount will be used to allocate the full forfeiture amount due.

Aren't the participant's entitled to an allocation of the full forfeiture balance as of 9/30?

[GBurns]

All the plans that I have seen use valuation at a certain date, which is why the "wiggle room" referred to by himt4 is advisable.

[Belgarath]

How about converting the dollar amount into a percentage? Since the entire amount, which was 5,000 as of the valuation date, must be reallocated, convert each participant's share into a percentage as of that date. Then when it is actually liquidated, the percentage approach will alleviate the problem with gain or loss. Would this work?

[Earl]

most investment cos. that I have dealt with won't do the math.

[rlb64]

The % method charges participants who are entitled to the allocation. That didn't seem appropriate.

[FundeK]

So, did the forfeiture account balance go down because of fees? If so, are fees charged to all participants in the plan? Pro-rata? Equal Amounts?

Couldn't you adjust the allocation to take into account the fee?

For example, say all participants in the plan were charged a $5.00 fee, including the forfeiture account, on 10/01/04 (100 participants total). You prepared the forfeiture allocation report on 9/15/04 for $5,000, and receive sign off from the company on 10/15/04. Your forfeiture account balance is now $4995. Why can't you reduce everyone's allocate by $.05 to take into account the $5.00 fee. If you had processed the allocation on 9/30/04, you would have allocated the entire $5,000 and each participant would have been charged $5.00 anyway, so why not share the $5.00 fee charged to the account equally?

Does this make sense at all?

[himt4]

I've sent the client the reallocation schedule in February to sign and send to the Financial Institution, and often they don't get around to doing it until September 15.

At which point the assets can be less than they were in February (even if its a penny less, the financial institution might reject the allocation schedule). reallocate all but $20, $30, $50. Whatever you are sure will be there. Don't let your hard work get rejected.

[rlb64]

Fundek, the difference is the $5 fee perhaps should be charged to anyone who has an account balance, as the plan provides for trust assets to pay for fees. I'm fairly certain the reduction is due to fees, but I haven't been able to confirm yet.

I understand the $ amount is small, so I'm sure it doesn't matter a whole lot.